The Creation of FirstCity Financial Corporation: A Clinical Study of the Bankruptcy Process
Ramesh K. S. Rao
University of Texas at Austin - Department of Finance
Susan V. White
University of Maryland - Department of Finance
International Journal of Finance Education, Vol. 1, No. 1, 2005
This paper examines the bankruptcy of FirstCity Bancorporation of Texas and its subsequent emergence, through a merger, as FirstCityFinancial Corporation (FCFC). It illustrates several interrelated issues: a) how informational asymmetries and disagreements among the various claimants were efficiently resolved through the use of a Court's Expert, b) why a merger was critical for the success of the reorganization plan, c) the process by which the claims were valued, and d) the steps taken by the Court to ensure that the "best interests test" was satisfied under the reorganization plan.
Keywords: Bankruptcy, confirmation, First City, best interests test, reorganization
JEL Classification: G33, G34
Date posted: February 6, 2006
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